SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12

HOMEFED CORPORATION
-----------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):

- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate
value of transaction:

- --------------------------------------------------------------------------------
(5) Total fee paid:

- --------------------------------------------------------------------------------

[_] Fee paid previously with preliminary materials:

- --------------------------------------------------------------------------------

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

- --------------------------------------------------------------------------------
(3) Filing Party:

- --------------------------------------------------------------------------------
(4) Date Filed:

- --------------------------------------------------------------------------------

HOMEFED CORPORATION

1903 WRIGHT PLACE
SUITE 220
CARLSBAD, CALIFORNIA 92008

-----------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 2007

------------------------

June 18, 2007

To Our Stockholders:

You are cordially invited to attend the Annual Meeting of Stockholders
of HomeFed Corporation to be held on July 10, 2007, at 1:30 p.m., at Grand
Pacific Palisades Resort and Hotel, 5805 Armada Drive, Carlsbad, California
92008, in the Terrace Room:

1. To elect six directors;

2. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors to audit the consolidated financial statements of the
Company and our subsidiaries for the year ended December 31, 2007; and

3. To transact such other business as may properly come before the
meeting or any adjournments or postponements of the meeting.

We will be conducting a tour of our Otay Ranch project, for interested
stockholders. The tour will begin at 8:30 a.m. on the morning of the meeting and
will last approximately four hours. The tour will depart from the Grand Pacific
Palisades Resort and Hotel. If you would like to reserve a place on the tour for
you and one invited guest, or need directions to the hotel, please call Annette
Alaga at (760) 918-8200, extension 241, before July 3, 2007.

Only holders of record of our common stock at the close of business on
May 30, 2007 will be entitled to notice of and to vote at the meeting. Please
vote your shares, either (i) by signing, dating and mailing the enclosed proxy
card in the accompanying postage prepaid envelope, (ii) by telephone using the
toll-free telephone number printed on the proxy card, or (iii) by the Internet,
using the instructions printed on the proxy card. This will assure that your
shares are represented at the meeting.

By Order of the Board of Directors.

CORINNE A. MAKI
Secretary

HOMEFED CORPORATION

1903 WRIGHT PLACE
SUITE 220
CARLSBAD, CALIFORNIA 92008

-----------------------

PROXY STATEMENT

-----------------------

ANNUAL MEETING OF STOCKHOLDERS

-----------------------
June 18, 2007

This proxy statement is being furnished to the stockholders of HomeFed
Corporation, a Delaware corporation, in connection with the solicitation of
proxies by the Board of Directors for use at the Annual Meeting of Stockholders
of the Company to be held on July 10, 2007 and at any adjournments or
postponements thereof.

At the meeting, stockholders will be asked:

1. To elect six directors;

2. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors to audit the consolidated financial statements of the Company and our
subsidiaries for the year ended December 31, 2007; and

3. To transact such other business as may properly come before the
meeting or any adjournments or postponements of the meeting.

The Board of Directors has fixed the close of business on May 30, 2007
as the record date for the determination of the holders of our common stock
entitled to notice of and to vote at the meeting. Each eligible stockholder will
be entitled to one vote for each share of common stock held on all matters to
come before the meeting and may vote in person or by proxy by completing the
enclosed proxy card and returning it in the enclosed postage prepaid envelope
or, as indicated on the proxy card, by Internet or telephone voting. At the
close of business on May 30, 2007, there were 8,273,834 shares of common stock
entitled to vote.

This proxy statement and the accompanying form of proxy are first being
sent to holders of our common stock on or about June 18, 2007.

THE MEETING

DATE, TIME, PLACE

The annual meeting will be held on July 10, 2007, at 1:30 p.m., local
time, at Grand Pacific Palisades Resort and Hotel, 5805 Armada Drive, Carlsbad,
California 92008, in the Terrace Room.

MATTERS TO BE CONSIDERED

At the meeting, stockholders will be asked to consider and vote to
elect six directors and to ratify the selection of independent auditors. See
"ELECTION OF DIRECTORS" and "RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS."
The Board of Directors knows of no matters that are to be brought before the
meeting other than as set forth in the notice of meeting. If any other matters
properly come before the meeting, the persons named in the enclosed form of
proxy or their substitutes will vote in accordance with their best judgment on
such matters.

RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE

Stockholders as of the record date, i.e., the close of business on May
30, 2007, are entitled to notice of and to vote at the meeting. As of the record
date, there were 8,273,834 shares of our common stock outstanding and entitled
to vote, with each share entitled to one vote.

REQUIRED VOTES

Election of Directors. Under Delaware law, the affirmative vote of the
holders of a plurality of shares of common stock voting on this matter is
required to elect each director. Consequently, only shares that are voted in
favor of a particular nominee will be counted toward such nominee's achievement
of a plurality. For purposes of the election of directors, abstentions and
broker non-votes will each be included in the determination of the number of
shares present for purposes of constituting a quorum, but will not be counted as
shares voting on the matter (and will have no effect on the result of the vote).

Ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors. Ratification of the selection of PricewaterhouseCoopers
LLP as independent auditors requires the affirmative vote of the holders of a
majority of the common stock voted at the meeting. For purposes of ratifying the
selection of PricewaterhouseCoopers LLP as independent auditors, abstentions and
broker non-votes will each be included in the determination of the number of
shares present for purposes of constituting a quorum, but will not be counted as
votes cast (and thus will have no effect on the result of the vote).

Other Matters. If any other matters are properly presented at the
meeting for action, including a question of adjourning or postponing the meeting
from time to time, the persons named in the proxies and acting thereunder will
have discretion to vote on such matters in accordance with their best judgment.

Joseph S. Steinberg, Chairman of our Board of Directors, beneficially
owns 741,820 shares of our common stock or approximately 9.0% of our common
stock outstanding at the record date, excluding 1,450 shares of our common stock
which Mr. Steinberg has the right to acquire upon exercise of stock options; and
a trust for the benefit of Mr. Steinberg's children beneficially owns 27,532
shares of our common stock or approximately 0.3% of our common stock outstanding
at the record date. Mr. Steinberg disclaims beneficial ownership of our common
stock held by this trust. Ian M. Cumming, a director of the Company,
beneficially owns 608,359 shares of our common stock or approximately 7.4% of
our common stock outstanding at the record date, excluding 1,450 shares of our
common stock which Mr. Cumming has the right to acquire upon exercise of stock
options. Leucadia National Corporation (together with its subsidiaries,
"Leucadia") is the beneficial owner of 2,474,226 shares of our common stock or
approximately 29.9% of our common stock outstanding at the record date. Mr.
Steinberg is also a director, President and significant stockholder of Leucadia.
Mr. Cumming is Chairman of the Board and a significant stockholder of Leucadia.

In addition, the Cumming Foundation and the Joseph S. and Diane H. Steinberg
1992 Charitable Trust, private charitable foundations independently established
by Messrs. Cumming and Steinberg, respectively, beneficially own 172,330 (2.1%)
shares of our common stock and 42,381 (0.5%) shares of our common stock
outstanding at the record date, respectively. Mr. Cumming and Mr. Steinberg each
disclaim beneficial ownership of our common stock held by their respective
private charitable foundations. Leucadia has advised us that it intends, and
Messrs. Cumming and Steinberg have advised us that they intend, to cause all of
our common stock beneficially owned, and all of our common stock beneficially
owned by charitable foundations established, by Mr. Cumming and Mr. Steinberg,
to be voted in favor of each nominee named herein and for the ratification of
the selection of independent auditors. In addition to Messrs. Cumming and
Steinberg, all of our other directors and officers beneficially own 0.3% of our
common stock outstanding at the record date.

VOTING AND REVOCATION OF PROXIES

Stockholders are requested to vote by proxy in one of three ways:

o Use the toll-free telephone number shown on your
proxy card;

o Visit the Internet website at www.voteproxy.com
and follow the on-screen instructions; or

o Mail, date, sign and promptly return your proxy
card in the enclosed postage prepaid envelope.

Shares of our common stock represented by properly executed proxies
received by us or proxies submitted by telephone or via the Internet, which are
not revoked will be voted at the meeting in accordance with the instructions
contained therein. If instructions are not given, proxies will be voted FOR
election of each nominee for director named herein and FOR ratification of the
selection of independent auditors.

Voting instructions (including instructions for both telephonic and
Internet proxies) are provided on the proxy card. The Internet and telephone
proxy procedures are designed to authenticate stockholder identities, to allow
stockholders to give voting instructions and to confirm that stockholders'
instructions have been recorded properly. A control number, located on the proxy
card, will identify stockholders and allow them to submit their proxies and
confirm that their voting instructions have been properly recorded. Costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, must be borne by the stockholder. If you
submit your proxy by Internet or telephone, it will not be necessary to return
your proxy card.

If your shares are held in the name of a bank or broker, follow the
voting instructions on the form you receive from your record holder. The
availability of Internet and telephone proxies will depend on their voting
procedures.

If a stockholder does not return a signed proxy card or submit a proxy
by the Internet or by telephone, and does not attend the meeting and vote in
person, his or her shares will not be voted.

Any proxy signed and returned by a stockholder or submitted by
telephone or via the Internet may be revoked at any time before it is exercised
by giving written notice of revocation to the Secretary of the Company, at our
address set forth herein, by executing and delivering a later-dated proxy
(either in writing, by telephone or via the Internet) or by voting in person at
the meeting. Attendance at the meeting will not in and of itself constitute
revocation of a proxy.

"HOUSEHOLDING" OF ANNUAL REPORT AND PROXY MATERIALS

We have adopted a procedure approved by the Securities and Exchange
Commission called "householding." Under this procedure, stockholders of record
who have the same address and last name will receive only one copy of our Annual
Report and proxy statement unless one or more of these stockholders notifies us
that they wish to continue receiving individual copies. This procedure will
reduce our printing costs and postage fees.

Stockholders who participate in householding will continue to receive
separate proxy cards. Also, householding will not in any way affect dividend
check mailings, if any.

If you are eligible for householding, but you and other stockholders of
record with whom you share an address currently receive multiple copies of the
Annual Report and/or the proxy statement, or if you hold in more than one
account, and in either case you wish to receive only a single copy of each of
these documents for your household, please contact our transfer agent, American
Stock Transfer and Trust Company, (in writing: 59 Maiden Lane, New York, New
York 10038; by telephone: in the U.S., Puerto Rico and Canada, 1-800-937-5449;
outside the U.S., Puerto Rico and Canada, 1-718-921-8200).

If we are householding materials to your address and you wish to
receive a separate copy of the 2006 Annual Report or this proxy statement, or if
you do not wish to participate in householding and prefer to receive separate
copies of these documents in the future, please contact American Stock Transfer
as indicated above.

Beneficial stockholders can request information about householding from
their banks, brokers or other holders of record.

PROXY SOLICITATION

We will bear the costs of solicitation of proxies for the meeting. In
addition to solicitation by mail, directors, officers and our regular employees
may solicit proxies from stockholders by telephone, telegram, in person or
otherwise. These directors, officers and employees will not receive additional
compensation, but may be reimbursed for out-of-pocket expenses in connection
with such solicitation. Brokers, nominees, fiduciaries and other custodians have
been requested to forward soliciting material to the beneficial owners of our
common stock held of record by them, and such custodians will be reimbursed for
their reasonable expenses.

INDEPENDENT AUDITORS

We have been advised that representatives of PricewaterhouseCoopers
LLP, our independent auditors for 2006, will attend the meeting, will have an
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.

ELECTION OF DIRECTORS

At the meeting, six directors are to be elected to serve until the next
meeting or until their successors are elected and qualified. All of the
following nominees are currently serving as directors. The persons named in the
enclosed form of proxy have advised that, unless contrary instructions are
received, they intend to vote FOR the six nominees named by the Board of
Directors and listed on the following table. The Board of Directors expects that
each of the nominees will be available for election as a director. However, if
by reason of an unexpected occurrence one or more of the nominees is not
available for election, the persons named in the form of proxy have advised that
they will vote for such substitute nominees as the Board of Directors may
propose. The following information is as of May 30, 2007.

NAME AND PRESENT POSITION, AGE, PERIOD SERVED AS A DIRECTOR, OTHER BUSINESS EXPERIENCE
IF ANY, WITH THE COMPANY DURING THE LAST FIVE YEARS AND FAMILY RELATIONSHIPS, IF ANY
- ---------------------------- -----------------------------------------------------------
Patrick D. Bienvenue...................... Mr. Bienvenue, 52, has served as a director since August 1998.
Since January 1996, Mr. Bienvenue has served in a variety of
executive capacities with real estate related subsidiaries of
Leucadia.

Paul J. Borden, President................. Mr. Borden, 58, has served as a director and our President since
May 1998. Mr. Borden was a Vice President of Leucadia from August
1988 through October 2000, responsible for overseeing many of
Leucadia's real estate investments.

Timothy M. Considine...................... Mr. Considine, 66, has served as a director since January 1992,
serving as Chairman of the Board from 1992 to December 1999, and is
employed on a part-time basis by Considine and Considine, an
accounting firm in San Diego, California, where he was a partner
from 1965 to 2002.

Ian M. Cumming............................ Mr. Cumming, 66, has served as a director since May 1999. He has
been a director and Chairman of the Board of Leucadia since June
1978 and a director and Chairman of the Board of The FINOVA Group
Inc., a middle market lender in which Leucadia has an indirect 25%
equity interest, since August 2001. Mr. Cumming has also been a
director of Skywest, Inc., a Utah-based regional air carrier,
since June 1986. Mr. Cumming is also a member of the Board of
Managers of Premier Entertainment Biloxi, LLC, the owner of the
Hard Rock Hotel &Casino in Biloxi, Mississippi, in which Leucadia
owns all of the preferred equity and 46% of the common equity.
Mr. Cumming is also an alternate director of Fortescue Metals
Group Ltd, an Australian public company that is engaged in the
mining of iron ore, in which Leucadia has a 9.9%
equity interest.

Michael A. Lobatz......................... Dr. Lobatz, 58, has served as a director since February 1995 and
has been a practicing physician in San Diego, California since
1981.

Joseph S. Steinberg, Mr. Steinberg, 63, has served as a director since August 1998 and as
Chairman of the Board..................... Chairman of the Board since December 1999. Mr. Steinberg has been
President of Leucadia since January 1979 and a director of Leucadia
since December 1978. In addition, he has served as a director of
Jordan Industries Inc., a public company that owns and manages
manufacturing companies, of which approximately 9.9% of the common
stock is beneficially owned by Leucadia, since June 1988 and FINOVA
since August 2001. Mr. Steinberg is also a member of the Board of
Managers of Premier Entertainment Biloxi and a director of
Fortescue.

The Board of Directors recommends a vote FOR the above-named nominees.

INFORMATION CONCERNING
THE BOARD OF DIRECTORS AND BOARD COMMITTEES

DIRECTOR INDEPENDENCE

On February 14, 2007, the Board affirmatively determined that Timothy
M. Considine and Michael Lobatz are independent, applying the National
Association of Securities Dealers' listing standards for independence.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

POLICIES AND PROCEDURES WITH RESPECT TO TRANSACTIONS WITH RELATED
PERSONS

The Board has adopted a policy for the review, approval and
ratification of transactions that involve "related persons" and potential
conflicts of interest (the "Related Person Transaction Policy").

The Related Person Transaction Policy applies to each director and
executive officer of the Company, any nominee for election as a director of the
Company, any security holder who is known to own of record or beneficially more
than five percent of any class of the Company's voting securities, any immediate
family member of any of the foregoing persons, and any corporation, firm,
association or their entity in which one or more directors of the Company are
directors or officers, or have a substantial financial interest (each a "Related
Person").

Under the Related Person Transaction Policy, a Related Person
Transaction is defined as a transaction or arrangement involving a Related
Person in which the Company is a participant or that would require disclosure in
the Company's filings with the SEC as a transaction with a Related Person.

Under the Related Person Transaction Policy, Related Persons must
disclose to the Audit Committee any potential Related Person Transactions and
must disclose all material facts with respect to such interest. All Related
Person Transactions will be reviewed by the Audit Committee and, in its
discretion, approved or ratified. In determining whether to approve or ratify a
Related Person Transaction the Audit Committee will consider the relevant facts
and circumstances of the Related Person Transaction, which may include factors
such as the relationship of the Related Person with the Company, the materiality
or significance of the transaction to the Company and the Related Person, the
business purpose and reasonableness of the transaction, whether the transaction
is comparable to a transaction that could be available to the Company on an
arms-length basis, and the impact of the transaction on the Company business and
operation.

RELATED PERSON TRANSACTIONS

The Company is required to obtain infrastructure improvement bonds
primarily for the benefit of the City of San Marcos prior to the beginning of
lot construction work and warranty bonds upon completion of such improvements in
the San Elijo Hills project. These bonds provide funds primarily to the City in
the event the Company is unable or unwilling to complete certain infrastructure
improvements in the San Elijo Hills project. Leucadia has obtained these bonds
on behalf of the subsidiaries through which the San Elijo Hills project is
owned, both before and after the Company's October 2002 acquisition of the San
Elijo Hills project. Those subsidiaries are responsible for paying all third
party fees related to obtaining the bonds. Should the City or others draw on the
bonds for any reason, one of these subsidiaries would be obligated to reimburse
Leucadia for the amount drawn. As of March 31, 2007, the amount of outstanding
bonds was approximately $16,200,000.

Since 1995, Leucadia has been providing administrative and accounting
services to the Company. Under the current administrative services agreement,
Leucadia provides services to the Company for a monthly fee of $15,000 ($180,000
in the aggregate for all of 2006). Pursuant to this agreement, Leucadia provides
the services of Ms. Corinne A. Maki, the Company's Secretary, in addition to
various administrative functions. Ms. Maki is an officer of subsidiaries of
Leucadia. The term of the administrative services agreement automatically renews
for successive annual periods unless terminated in accordance with its terms.
Leucadia has the right to terminate the agreement by giving the Company not less
than one year's prior notice, in which event the then monthly fee will remain in
effect until the end of the notice period. The Company has the right to
terminate the agreement, without restriction or penalty, upon 30 days prior
written notice to Leucadia. The agreement has not been terminated by either
party.

Mr. Steinberg's brother, Morton M. Steinberg, is a partner in the law
firm DLA Piper, US LLP, an international law firm with offices in twenty four
countries. During 2006, the Company paid approximately $240,000 in aggregate
fees to such firm for legal services rendered to the Company. This amount
represents less than .25% of all fees received by DLA Piper, US LLP in 2006.
During 2007 the Company has paid approximately $32,000 in aggregate fees to DLA
Piper, US LLP. Mr. Morton Steinberg has a less than 1% partnership interest in
DLA Piper, US LLP.

The Audit Committee or the Board has approved or ratified each of the
foregoing.

MEETINGS AND COMMITTEES

During 2006, the Board of Directors held four meetings and took action
by unanimous written consent on two other occasions. In 2007, the Board of
Directors have held two meetings and have taken action by unanimous written
consent on one other occasion.

The Board of Directors' has a standing Audit Committee and Compensation
Committee.

The functions of the Audit Committee are to assist the Board of
Directors in fulfilling its responsibility to oversee the quality and integrity
of our financial statements, our compliance with legal and regulatory
requirements, the qualifications and independence of our independent
accountants, the performance of our independent accountants and significant
financial matters. In discharging its duties, the Audit Committee has the sole
authority to select (subject to stockholder ratification, which ratification is
not binding on the Audit Committee), compensate, evaluate and replace the
independent accountants, reviews and approves the scope of the annual audit,
reviews and pre-approves the engagement of our independent accountants to
perform audit and non-audit services and the related fees, meets independently
with our independent accountants and senior management, reviews the integrity of
our financial reporting process and reviews our financial statements and
disclosures and certain Securities and Exchange Commission filings.

During 2006, the Audit Committee met six times, including meetings with
the independent auditors without management present and took action by unanimous
written consent on one other occasion. In 2007, the Audit Committee has held
three meetings. The Board of Directors has adopted a charter for the Audit
Committee which was attached as Annex A to the Proxy Statement for our 2005
Annual Meeting of Stockholders. The Audit Committee consists of Mr. Considine

(Chairman) and Dr. Lobatz. Our Board has determined that each of Mr. Considine
and Dr. Lobatz is independent, applying the National Association of Securities
Dealers' listing standards for independence, and that Mr. Considine is qualified
as an audit committee financial expert within the meaning of regulations of the
Securities and Exchange Commission.

The Compensation Committee was formed in March 2005. The functions of
the Compensation Committee are to determine and approve the compensation of our
executive officers. The Compensation Committee consists of Mr. Steinberg. The
Compensation Committee does not have a formal charter.

The Board of Directors does not have a nominating committee or a policy
concerning stockholder nominations. As our common stock is traded on the OTC
Bulletin Board Service, we are not subject to listing standards that would
require director nominees to be selected or recommended by a majority of
independent directors or a nominating committee comprised solely of independent
directors. Because Mr. Steinberg, Mr. Cumming and Leucadia together beneficially
own nearly 50% of the outstanding common stock of the Company, the Board
believes it is appropriate to have all directors involved in the process of
nominating directors rather than delegate this responsibility to a smaller group
of directors. As indicated above, under the listing standards of the National
Association of Securities Dealers, Mr. Considine and Dr. Lobatz are independent
directors serving on the Board. All current members of the Board of Directors
have been re-nominated to serve as our directors.

The Board does not believe that it is in the Company's best interests
to establish rigid criteria for the selection of prospective nominees inasmuch
as the needs of the Company change over time. Accordingly, the selection of
prospective nominees would be based on skills relevant to the issues the Company
faces at the time of nomination. Nominees would be selected on the basis of
their experience and qualifications, availability to devote sufficient time to
the Board and the needs of the Company at that time. Candidates who may also
become members of our Audit Committee would be required to have the financial
experience necessary to perform the duties of a member of the Audit Committee
and to satisfy the requirements of the Securities and Exchange Commission for
membership on the Audit Committee. In 2006, the Board did not pay a fee to any
third party to identify candidates.

A stockholder entitled to vote in the election of directors may
nominate one or more persons for election as director at a meeting if written
notice of that stockholder's intent to make the nomination has been given to us,
with respect to an election to be held at an annual meeting of stockholders, not
less than 120 days before the first anniversary of our proxy statement in
connection with the last annual meeting, and, with respect to an election to be
held at a special meeting of stockholders, not later than the tenth day
following the date on which notice of the meeting is first given to
stockholders. The notice shall include the name and address of the stockholder
and his or her nominees, a representation that the stockholder is entitled to
vote at the meeting and intends to nominate the person, a description of all
arrangements or understandings between the stockholder and each nominee, other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the stockholder's nominees, and the consent of each
nominee to serve as a director of the Company if so elected. We may require any
proposed nominee to furnish other information as we may reasonably require to
determine the eligibility of the proposed nominee to serve as a director of the
Company. We did not receive any nominations from stockholders for election as
directors at the meeting. See "Proposals by Stockholders" for the deadline for
nominating persons for election as directors for the 2008 annual meeting.

ATTENDANCE

All directors attended at least 75% of the meetings of the Board of
Directors and committees of the Board of Directors on which they served. It is
the Company's policy that directors are expected to dedicate sufficient time to
the performance of his duties as a director, including by attending meetings of
the stockholders, the Board of Directors and committees of which he is a member.
All directors, other than Ian M. Cumming, attended the annual meeting of
stockholders in July 2006.

COMMUNICATING WITH THE BOARD

Stockholders and other parties interested in communicating directly
with the Board of Directors as a group may do so by writing to the Board of
Directors, c/o Corporate Secretary, HomeFed Corporation, 1903 Wright Place,
Suite 220, Carlsbad, California 92008. The Corporate Secretary will review all
correspondence and regularly forward to the Board of Directors a summary of all
such correspondence that, in the opinion of the Corporate Secretary, deals with
the functions of the Board or committees thereof or that the Corporate Secretary
otherwise determines requires attention. Directors may at any time review a log
of all correspondence received by the Company that is addressed to members of
the Board and request copies of all such correspondence. Concerns relating to
accounting, internal controls or auditing matters will immediately be brought to
the attention of the Chairman of the Audit Committee.

CODE OF PRACTICE

We have a Code of Business Practice, which is applicable to all of our
directors, officers and employees, and includes a Code of Practice applicable to
our principal executive officers and senior financial officers. Both the Code of
Business Practice and the Code of Practice are available without charge upon
request. Requests should be addressed to Corporate Secretary, HomeFed
Corporation, 1903 Wright Place, Suite 220, Carlsbad, California 92008. We intend
to file with the Securities and Exchange Commission amendments to or waivers
from our Code of Practice applicable to our principal executive officers and
senior financial officers.

The information contained in this proxy statement with respect to the
Audit Committee charter and the independence of the non-management members of
the Board of Directors shall not be deemed to be "soliciting material" or to be
"filed" with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates it by reference in a filing.

PRESENT BENEFICIAL OWNERSHIP OF OUR COMMON STOCK

Set forth below is certain information as of May 30, 2007 with respect
to the beneficial ownership determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, of our common stock by (1) each
person who, to our knowledge, is the beneficial owner of more than 5% of our
outstanding common stock, which is our only class of voting securities, (2) each
director and nominee for director, (3) each of the executive officers named in
the Summary Compensation Table under "Executive Compensation," (4) the trust for
the benefit of Mr. Steinberg's children and private charitable foundations
established by Mr. Cumming and Mr. Steinberg and (5) all of our executive
officers and directors as a group. Unless otherwise stated, the business address
of each person listed is c/o HomeFed Corporation, 1903 Wright Place, Suite 220,
Carlsbad, California 92008.

Number of Shares
Name and Address and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- --------

Leucadia National Corporation (a)............. 2,474,226 29.9%
Beck, Mack & Oliver LLC (b) .................. 528,728 6.4%
Patrick D. Bienvenue.......................... 2,650(c) *
Paul J. Borden................................ 8,228(c) *
Timothy M. Considine.......................... 3,150(d) *
Ian M. Cumming................................ 609,809(e)(f) 7.4%
Michael A. Lobatz............................. 2,550(c) *
Curt R. Noland................................ 5,000 *
Erin N. Ruhe.................................. 5,000 *
Joseph S. Steinberg........................... 743,270(f)(g) 9.0%
The Steinberg Children Trust.................. 27,532(h) .3%
Cumming Foundation............................ 172,330(i) 2.1%
The Joseph S. and Diane H. Steinberg
1992 Charitable Trust.................... 42,381(j) .5%
All Directors and executive officers
as a group (8 persons)................... 1,379,657(k) 16.6%

- -------------------
* Less than .1%.

(a) The business address of this beneficial owner is 315 Park Avenue South, New
York, New York 10010.

(b) The business address of the beneficial owner is 360 Madison Avenue, New
York, New York 10017. Based upon a Schedule 13G dated February 6, 2007,
filed by Beck, Mack & Oliver LLC ("BMO") and discussions with BMO, the
securities reported in BMO's Schedule 13G are beneficially owned by
separate managed account holders which, pursuant to individual advisory
contracts, are advised by BMO. Such advisory contracts grant to BMO all
investment and voting power over the securities owned by such advisory
clients. Beneficial ownership of these common shares, including all rights
to distributions in respect thereof and the proceeds of a sale or
disposition, is held by the separate, unrelated account holders, and BMO
disclaims beneficial ownership of such common shares.

(d) Includes 500 shares held by the Seeseeanoh Inc. Retirement Plan. Mr.
Considine and his wife are the sole owners of Seeseeanoh, a real estate
company in San Diego, California. Also includes (i) 1,325 shares held by
The Considine Family 1981 Trust, of which Mr. Considine and his wife are

trustees and (ii) 1,325 shares that may be acquired upon exercise of
currently exercisable stock options.

(e) Includes (i) 9,530 shares (.1%) beneficially owned by Mr. Cumming's wife
(directly and through trusts for the benefit of Mr. Cumming's children of
which Mr. Cumming's wife is trustee) as to which Mr. Cumming may be deemed
to be the beneficial owner, (ii) 60,000 shares (.7%) held by a corporation
which is 50% owned by Mr. Cumming and 50% owned by Mr. Cumming's wife and
(iii) 1,450 shares that may be acquired upon the exercise of currently
exercisable stock options. Does not include 2,474,226 shares held by
Leucadia which Mr. Cumming may be deemed to beneficially own as a result of
his beneficial ownership of Leucadia common shares.

(f) Messrs. Cumming and Steinberg have an oral agreement pursuant to which they
will consult with each other as to the election of a mutually acceptable
Board of Directors of the Company. The business address for Messrs. Cumming
and Steinberg is c/o Leucadia National Corporation, 315 Park Avenue South,
New York, New York 10010.

(g) Includes (i) 3,676 shares (less than .1%) beneficially owned by Mr.
Steinberg's wife and daughter as to which Mr. Steinberg may be deemed to be
the beneficial owner, (ii) 61,793 shares (.7%) owned by trusts for the
benefit of Mr. Steinberg's children and (iii) 1,450 shares that may be
acquired upon the exercise of currently exercisable stock options. Does not
include 2,474,226 shares held by Leucadia which Mr. Steinberg may be deemed
to beneficially own as a result of his beneficial ownership of Leucadia
common shares.

(h) Mr. Steinberg disclaims beneficial ownership of all of our common stock
held by this trust.

(i) Mr. Cumming is a trustee and President of the foundation and disclaims
beneficial ownership of our common stock held by the foundation.

(j) Mr. Steinberg and his wife are trustees of the trust. Mr. Steinberg
disclaims beneficial ownership of our common stock held by the trust.

(k) Includes 8,575 shares that may be acquired upon the exercise of currently
exercisable stock options.

As of May 30, 2007, Cede & Co. held of record 4,821,304 shares of our
common stock (approximately 58.3% of our total common stock outstanding). Cede &
Co. held such shares as a nominee for broker-dealer members of The Depository
Trust Company, which conducts clearing and settlement operations for securities
transactions involving its members.

As described in our Form 10-K for the fiscal year ended December 31,
2006, our common stock are subject to transfer restrictions that are designed to
reduce the possibility that certain changes in ownership could result in
limitations on the use of our tax attributes. Our certificate of incorporation
contains provisions that generally restrict the ability of a person or entity
from acquiring ownership (including through attribution under the tax law) of 5%
or more of our common shares and the ability of persons or entities now owning
5% or more of our common shares from acquiring additional common shares.
Stockholders (and prospective stockholders) are advised that, under the tax law
rules incorporated in these provisions, the acquisition of even a single share
of common stock may be proscribed under our certificate of incorporation, given
(among other things) the tax law ownership attribution rules as well as the tax
law rules applicable to acquisitions made in coordination with or in concert
with others. The restriction will remain until the earliest of (a) December 31,
2010, (b) the repeal of Section 382 of the Internal Revenue Code (or any
comparable successor provision) and (c) the beginning of our taxable year to
which these tax attributes may no longer be carried forward. The restriction may
be waived by our Board of Directors. Stockholders are advised to carefully
monitor their ownership of our common stock and consult their own legal advisors
and/or us to determine whether their ownership of our common shares approaches
the proscribed level. Based upon discussions with BMO, we believe that the
beneficial ownership (determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) by BMO of our common stock as reflected in the

table above is not in violation of the transfer restrictions contained in our
certificate of incorporation.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION & ANALYSIS

INTRODUCTION

In March 2005, the Board of Directors appointed a compensation
committee consisting of Joseph S. Steinberg. Prior to that time, the Board of
Directors delegated to our President, in consultation with certain directors,
the authority to determine the compensation to be paid to our executive officers
who are Company employees, while the Board of Directors awarded stock options.
The Compensation Committee now determines and approves the compensation of the
executive officers of the Company, including those named in the Summary
Compensation Table (the "Named Executive Officers").

COMPENSATION OBJECTIVES AND PHILOSOPHY

Our compensation philosophy is based upon rewarding current and past
contributions, performance and dedication and providing incentives for superior
long-term performance. We believe that there should be a strong link between pay
and performance of both the Company and the individual. Accordingly, a large
percentage of annual compensation consists of discretionary bonus compensation.
This ensures that compensation paid to an executive reflects the individual's
specific contributions to our success, the level and degree of complexity
involved in his/her contributions to the Company and the Company's overall
performance. We believe our compensation package aligns the interests of
executive officers with those of our stockholders.

The Company believes that our current compensation program fits within
our overall compensation philosophy of providing a straight-forward compensation
package and strikes the appropriate balance between short and long-term
performance objectives.

SETTING EXECUTIVE COMPENSATION

In determining compensation for our Named Executive Officers, the
Compensation Committee does not rely on any specific formula, benchmarking or
pre-determined targets. The Compensation Committee focuses primarily on its
subjective determination of the performance of the individual executive officer,
as well as on the performance of the Company.

In considering executive compensation, the Compensation Committee takes
into account an executive officer's responsibilities, as well as the services
rendered by the executive officer to the Company.

ELEMENTS OF COMPENSATION

Our compensation package for executive officers consists of three basic
elements: (1) base salary; (2) annual bonus compensation; and (3) long-term
incentives in the form of stock options granted pursuant to our 1999 stock
incentive plan.

Other elements of compensation include medical and life insurance
benefits available to employees generally. Additionally, certain perquisites may
be available to executive officers that are not available to other employees
generally.

Each element of compensation serves a different purpose. Salary and
bonus payments are designed mainly to reward current and past performance, while
stock options are designed to provide incentive for strong long-term future
performance and are directly linked to stockholders' interests because the value
of the awards will increase or decrease based upon the future price of our
common stock.

None of our executive officers is a party to an employment agreement
with the Company.

BASE SALARY

Base salary is consistent with the executive's office and level of
responsibility, with annual salary increases which generally amount to a small
percentage of the executive's prior base salary, primarily reflecting cost of
living increases.

SHORT TERM INCENTIVES - ANNUAL BONUS COMPENSATION

Annual bonus compensation of executive officers is determined by the
Compensation Committee based on its subjective assessment of an executive's
performance and the Company's performance. Bonuses can vary widely from year to
year, reflecting the varying levels of real estate sales in any given year, the
progress made on obtaining entitlements for land development on land owned by
the Company and on the degree of success in finding, analyzing and purchasing
new real estate development opportunities.

Additionally, in 2006 all employees of the Company (but not all
subsidiaries) received a discretionary year-end bonus equal to approximately 3%
of base salary.

LONG TERM INCENTIVES - STOCK OPTIONS

By means of our 1999 stock incentive plan, we seek to retain the
services of persons now holding key positions and to secure the services of
persons capable of filling such positions.

Options Awarded to Executive Officers

Occasionally, stock options may be awarded which, under the terms of
our 1999 stock incentive plan, permit the executive officer or other employee to
purchase shares of our common stock at not less than the fair market value of
the shares of common sock at the date of grant. The extent to which the employee
realizes any gain is, therefore, directly related to increases in the price of
our common stock and, therefore, stockholder value, during the period of the
option. In certain circumstances, options having an exercise price below the
fair market value of our common stock on the date of grant may be issued
(although none have been granted to date). Options granted to executive officers
generally become exercisable at the rate of 20% per year, commencing one year
after the date of grant. The number of stock options awarded to an executive
officer is generally not based on any specific formula, but rather on a
subjective assessment of the executive's performance and the Company's
performance. Options are priced at the closing price on the date of grant and
are not granted to precede the announcement of favorable information. Besides
the options granted to Paul J. Borden by virtue of the automatic grant to
directors, as discussed below, the last time that options were granted to
executive officers was in 2000.

Options Awarded to Directors

Under the terms of our 1999 stock incentive plan, each director is
automatically granted options to purchase 1,000 shares on the date on which the
annual meeting of our stockholders is held each year. As stated above, options
are priced at the closing price on the date of grant.

In July 2006, pursuant to this automatic grant, Paul J. Borden was
granted options to purchase 1,000 shares of our common stock with an exercise
price of $65.50 per share, which become exercisable at the rate of 25% per year,
commencing one year after the date of grant.

OTHER BENEFITS; EXECUTIVE PERQUISITES

Medical and life insurance benefits and matching contributions to our
401(k) plan are available to employees generally.

Mr. Borden maintains his primary residence in New Jersey. We reimburse
him for costs of maintaining a temporary residence in California, airfare to and
from his primary residence and transportation costs including the personal use
of a Company car while in California. Such reimbursements are considered to be
taxable compensation reportable by Mr. Borden under federal income tax rules,
which results in a net cash cost to him, even though he does not gain any
incremental financial benefit from these reimbursements. As a result, beginning
in 2005, the Board of Directors (without Mr. Borden's participation) agreed to
pay Mr. Borden additional compensation which, after taxes, will provide him with
sufficient funds to pay the taxes due on the expense amounts reimbursed by us.

In 2006, we paid Mr. Borden $46,952 with respect to additional taxable
compensation reported by Mr. Borden for reimbursements made during 2006.

Mr. Noland receives the use of a Company owned car and certain related
benefits.

No other Named Executive Officers receive perquisites.

STOCK OWNERSHIP REQUIREMENTS

We do not have a formal stock ownership requirement.

COMPENSATION OF NAMED EXECUTIVE OFFICERS

On January 9, 2007, the Compensation Committee approved annual salary
increases (effective January 1, 2007) and discretionary 2006 cash bonuses for
each of the Named Executive Officers.

ACCOUNTING AND TAX MATTERS

Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R"), using the
modified prospective method. SFAS 123R requires that the cost of all share-based
payments to employees, including grants of employee stock options, be recognized
in the financial statements based on their fair values. The cost is recognized
as an expense over the vesting period of the award. Prior to adoption of SFAS
123R, no compensation cost was recognized in the statements of operations for
the Company's share-based compensation plans, although the Company disclosed
certain pro forma amounts as required. SFAS 123R has not had a material impact
on the Company's consolidated financial statements.

Under the provisions of Section 162(m) of the Internal Revenue Code of
1986, we would not be able to deduct compensation to our executive officers
whose compensation is required to be disclosed for such year in excess of $1
million per year unless such compensation was within the definition of
"performance-based compensation" or meets certain other criteria. To qualify as
"performance-based compensation," in addition to certain other requirements,
compensation generally must be based on achieving certain pre-established
objective performance criteria. The Board of Directors believes that
compensation at such levels is not likely to be a recurring event and that it is
in our interest to retain maximum flexibility in our compensation programs to
enable us to appropriately reward, retain and attract the executive talent
necessary to the Company's success. The Board recognizes that in appropriate
circumstances compensation that is not deductible under Section 162(m) may be
warranted and could be paid in the Board of Directors' discretion.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee consists of Mr. Steinberg. Mr. Steinberg was
not an officer or employee of the Company during 2006 nor was he formerly an
officer of the Company. As discussed under "Related Person Transactions" Mr.
Steinberg's brother is a partner in a law firm to which the Company paid
approximately $240,000 in 2006 for legal services rendered to the Company.

COMPENSATION COMMITTEE REPORT

I have reviewed and discussed with the Company's management the above
Compensation Discussion and Analysis ("CD&A"). Based upon my review and
discussions, I have recommended to the Board of Directors that the CD&A be
included in these Proxy Materials.

COMPENSATION COMMITTEE

Joseph S. Steinberg

SUMMARY COMPENSATION TABLE

Name and Principal Option All Other
Position Year Salary Bonus Awards (2) Compensation (3) Total
- ------- --------- ---- ------ ----- ---------- ---------------- -----

Paul J. Borden, 2006 $262,732(1) $307,162 $12,169 $119,288(4) $701,351
President
Curt R. Noland, 2006 $154,492 $254,635 - $16,970(5) $426,097
Vice President
Erin N. 2006 $125,008 $253,750 - $8,800 $387,558
Ruhe,
Vice President,
Treasurer and Controller

(1) Includes director fees to Mr. Borden from the Company of $24,000 in 2006.

(2) This column represents the expense recorded in 2006 for the fair value of
stock options granted to Mr. Borden in 2006 and prior years, all in
accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude
the impact of estimated forfeitures related to service-based vesting
conditions. For information on the valuation assumptions with respect to
the 2006 grant refer to Note 7 to our consolidated financial statements
contained in our Form 10-K for the fiscal year ended December 31, 2006. For
information on the valuation assumptions with respect to grants made prior
to 2006, refer to the note on Stock Incentive Plans in the Company's
financial statements in the Form 10-K for the respective fiscal year.

(3) Certain items included in this column (including personal use of company
cars) are currently taxable to the Named Executive Officer. The amount of
taxable income for the individual is determined pursuant to Internal
Revenue Service rules which may differ from the amounts reflected in this
column.

(4) Consists of non-cash compensation of $27,048 for maintaining a temporary
residence in California and $25,013 for airfare to and from his primary
residence in New Jersey. This column also includes transportation and the
personal use of a Company car while in California and related expenses, as
well as contributions made by the Company to a defined contribution 401(k)
plan on behalf of Mr. Borden, none of which exceeded the greater of $25,000
or 10% of the total amount of these benefits for Mr. Borden. Also includes
$46,952 in additional cash compensation which, after taxes, will provide
him with sufficient funds to pay the taxes due on the expense amounts
reimbursed by us.

(5) Consists of non-cash compensation for use of a Company car and related
expenses and contributions made by the Company to a defined contribution
401(k) plan on behalf of Mr. Noland, none of which exceeded the greater of
$25,000 or 10% of the total amount of these benefits for Mr. Noland.

GRANTS OF PLAN-BASED AWARDS IN 2006

This table provides information about equity awards granted to the named
executives in 2006 under our 1999 Stock Option Plan. As discussed in the CD&A,
in 2006 Mr. Borden was granted options pursuant to the automatic grant to
directors under the 1999 stock incentive plan.

All Other
Option
Awards:
Number of Exercise or
Securities Base Price Grant Date Fair Value
Grant Underlying of Option of Stock and Option
Name Date Options (1) Awards (2) Awards (3)
---- ---- ----------- ---------- ----------

Paul J. Borden, President 7/18/06 1,000 $65.50 $23,827

(1) This column shows the number of common shares issuable under options
granted in 2006. The options vest and become exercisable in four equal
installments beginning on July 18, 2007.

(2) This column shows the exercise price for the stock options granted, which
was the closing price of the Company's common stock on the date of grant,
July 18, 2006.

(3) This column shows the fair value of any stock options granted to the Named
Executive Officer in 2006. The fair value was determined in accordance with
SFAS 123R on the grant date, and is being recognized as an expense over the
vesting period.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

This table provides information on the holdings of option awards by the Named
Executive Officers at December 31, 2006. This table includes exercisable and
unexercisable options. The options vest and become exercisable in five equal
annual installments, commencing one year from the grant date. For additional
information about the option awards, see the description of our 1999 stock
incentive plan in the CD&A.

Option Awards
----------------------------------------------
Number of Securities Option Option
Underlying Unexercised Exercise Expiration
Name Grant Date Options Price Date
---- ---------- ------- ----- ----
Exercisable Unexercisable
----------- -------------

Paul J. Borden, 7/10/02 100 - $9.50 7/10/07
President 7/9/03 75 25 $27.40 7/9/08
8/24/04 500 500 $44.50 8/24/09
7/12/05 250 750 $65.19 7/12/10
7/18/06 - 1,000 $65.50 7/18/11

OPTION EXERCISES AND STOCK VESTED IN FISCAL 2006

This table provides information for the Named Executive Officers with respect to
stock options exercised during 2006, including the number of shares acquired
upon exercise and the value realized, each before payment of any applicable
withholding taxes.

Option Awards
Number of
Shares
Acquired Value Realized
Name on Exercise on Exercise
- ---------------------------------- ----------- -----------
Paul J. Borden, President (1) 2,600 $141,520
Erin N. Ruhe, Controller, Vice
President and Treasurer (2) 2,500 $136,250

(1) Mr. Borden exercised 2,500 stock options on March 2, 2006 with an
exercise price of $7.50 per share and a market price of $62.00 per
share and 100 stock options on March 2, 2006 with an exercise price of
$9.30 and a market price of $62.00.

(2) Ms. Ruhe exercised 2,500 stock options on March 2, 2006 with an
exercise price of $7.50 per share and a market price of $62.00 per
share.

DIRECTOR COMPENSATION

In 2006, each director received a retainer of $24,000 for serving on
the Board of Directors. In addition, Mr. Considine was paid $26,000 for serving
as Chairman of the Audit Committee, and Dr. Lobatz was paid $17,000 for serving
on the Audit Committee. In addition, under the terms of our 1999 Stock Incentive
Plan, each director is automatically granted options to purchase 1,000 shares on
the date on which the annual meeting of our stockholders is held each year. The
purchase price of the shares covered by such options is the fair market value of
such shares on the date of grant. These options become exercisable at the rate
of 25% per year commencing one year after the date of grant. As a result of this
provision, options to purchase 1,000 shares of Common Stock at an exercise price
of $65.50 per share were awarded to each of Messrs. Bienvenue, Considine,
Cumming, Lobatz and Steinberg on July 18, 2006. The Company reimburses directors
for reasonable travel expenses incurred in attending board and committee
meetings.

This table sets forth compensation paid to the non-employee directors
during 2006.

Fees Earned or
Paid in Option
Name Cash (1) Awards (2) Total (3)
- -------------------------- -------- ---------- ---------
Patrick D. Bienvenue $24,000 $12,169 $36,196
Timothy M. Considine $50,000 $12,169 $62,199
Ian M. Cumming $24,000 $12,169 $36,196
Michael A. Lobatz $41,000 $12,169 $53,196
Joseph S. Steinberg $24,000 $12,169 $36,196

(1) This column reports the amount of cash compensation earned in 2006 for Board
and committee service.

(2) This column represents the expense recorded in 2006 for the fair value of
options granted to directors in 2006 and in prior years, in accordance with
SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of
estimated forfeitures related to service-based vesting conditions. For
information on the valuation assumptions with respect to the 2006 grant
refer to Note 7 to our consolidated financial statements contained in our
Form 10-K for the year ended December 31, 2006. For information on the
valuation assumptions with respect to grants made prior to 2006, refer to
the note on Stock Incentive Plans in the Company's financial statements in
the Form 10-K for the respective fiscal year.

(3) This table does not include disclosure for any perquisites and other
personal benefits for any non-employee director because such amounts did not
exceed $10,000 in the aggregate per director. Such perquisites and other
personal benefits consisted of expenses incurred in connection with
attendance at board and committee meetings, principally travel, lodging,
meals and other incidental expenses for spouses/guests accompanying
directors to Company related events.

POTENTIAL PAYMENT UPON TERMINATION OF EMPLOYMENT

None of the Named Executive Officers is a party to an employment
agreement. However, under the terms of the 1999 stock incentive plan (the
"Plan"), the time within which to exercise vested options will be extended in
accordance with the Plan, but not beyond the expiration date of the Option, for
a period of either three months or one year, depending on the triggering event;
these triggering events do not result in any acceleration of any unvested
Options. For the number of Options exercisable by each Named Executive Officer
as of December 31, 2006 see the Outstanding Equity Awards at Fiscal Year-End
table.
Upon the occurrence of an Extraordinary Event of the Company (as
defined in the Option Plan, including a change in control of the Company) all
then outstanding Options that have not vested or become exercisable will
immediately become exercisable. Had an Extraordinary Event occurred on December
31, 2006, Paul J. Borden, the only Named Executive Officer holding Options,
would have received approximately $13,000 (determined by multiplying (A) the
spread between the $66.00 per common share closing price on December 31, 2006
and the per common share exercise price for each option by (B) the number of
common shares covered by previously unvested options.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors, and persons who beneficially own more than 10%
of a registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based solely
upon a review of the copies of such forms furnished to us and written
representations from our executive officers, directors and greater than 10%
beneficial stockholders, we believe that during the year ended December 31,
2006, all persons subject to the reporting requirements of Section 16(a) filed
the required reports on a timely basis.

AUDIT COMMITTEE REPORT

The following is the report of our Audit Committee with respect to our
audited financial statements for the fiscal year ended December 31, 2006.

REVIEW WITH MANAGEMENT

The Audit Committee reviewed and discussed our audited financial
statements with management.

REVIEW AND DISCUSSIONS WITH INDEPENDENT AUDITORS

The Audit Committee discussed the Company's audited financial
statements with management, which has primary responsibility for the financial
statements. PricewaterhouseCoopers LLP, our independent auditors, is responsible
for expressing an opinion on the conformity of the Company's audited financial
statements with accounting principles generally accepted in the United States of
America. The Audit Committee discussed with PricewaterhouseCoopers LLP the
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees) regarding the auditor's judgments about
the quality of the Company's accounting principles as applied in its financial
reporting.

The Audit Committee also received the written disclosures and the
letter from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and has
discussed with PricewaterhouseCoopers LLP their independence. The Audit
Committee also concluded that PricewaterhouseCoopers LLP's provision of audit
and non-audit services to the Company and its subsidiaries, as described in this
Proxy Statement, is compatible with PricewaterhouseCoopers LLP's independence.

CONCLUSION

Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that its audited consolidated
financial statements be included in our Annual Report on Form 10-K for the year
ended December 31, 2006 for filing with the Securities and Exchange Commission
and selected Pricewaterhouse Coopers LLP as the independent auditor for 2007.

SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Timothy M. Considine
Michael A. Lobatz

The information contained in the foregoing report shall not be deemed
to be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates it by
reference in a filing.

INDEPENDENT ACCOUNTING FIRM FEES

The Audit Committee has adopted policies and procedures for pre-approving all
audit and non-audit work performed by the Company's independent auditor,
PricewaterhouseCoopers LLP. The Audit Committee has pre-approved (i) certain
general categories of work where no specific case-by-case approval is necessary
("general pre-approvals") and (ii) categories of work which require the specific
pre-approval of the Audit Committee ("specific pre-approvals"). For additional
services or services in an amount above the annual amount that has been
pre-approved, additional authorization from the Audit Committee is required. The
Audit Committee has delegated to the Committee chair the ability to pre-approve
all of these services. Any pre-approval decisions made by the Committee chair
under this delegated authority will be reported to the full Audit Committee. All

requests for services to be provided by PricewaterhouseCoopers LLP that do not
require specific approval by the Audit Committee must be submitted to the
Controller of the Company, who determines whether such services are in fact
within the scope of those services that have received the general pre-approval
of the Audit Committee. The Controller reports to the Audit Committee
periodically.

In accordance with the SEC's definitions and rules, Audit Fees are
fees paid to PricewaterhouseCoopers LLP for professional services for the audit
of the Company's consolidated financial statements included in the Company's
Form 10-K, the review of financial statements included in the Company's Form
10-Qs, services that are normally provided in connection with statutory and
regulatory filings or engagements, assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements including compliance with regulatory matters, the Sarbanes-Oxley Act,
and consulting with respect to technical accounting and disclosure rules. All
such services were approved by the Audit Committee. Such amounts aggregated
$245,500 and $222,000 for the years ended December 31, 2006 and 2005,
respectively.

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors is being submitted to stockholders because we believe that
this action follows sound corporate practice and is in the best interests of the
stockholders. If the stockholders do not ratify the selection by the affirmative
vote of the holders of a majority of the common shares voted at the meeting, the
Audit Committee of the Board of Directors will reconsider the selection of
independent auditors, but such a vote will not be binding on the Audit
Committee. If the stockholders ratify the selection, the Audit Committee, in its
discretion, may still direct the appointment of new independent auditors at any
time during the year if they believe that this change would be in our and our
stockholders' best interests.

The Board of Directors recommends that the stockholders ratify the
selection of PricewaterhouseCoopers LLP, certified public auditors, as
independent auditors to audit our accounts and those of our subsidiaries for
2007. The Audit Committee approved the selection of PricewaterhouseCoopers LLP
as our independent auditors for 2007. PricewaterhouseCoopers LLP are currently
our independent auditors.

The Board of Directors recommends a vote FOR this proposal.

ANNUAL REPORT AND COMPANY INFORMATION

A copy of our 2006 Annual Report to stockholders on Form 10-K, as
amended, is being furnished to stockholders concurrently herewith. Exhibits to
the Annual Report will be furnished to stockholders upon payment of photocopying
charges.

PROPOSALS BY STOCKHOLDERS

Proposals that stockholders wish to include in our proxy statement and
form of proxy for presentation at our 2008 annual meeting of stockholders must
be received by us at 1903 Wright Place, Suite 220, Carlsbad, California 92008,
Attention of Corinne A. Maki, Secretary, no later than February 18, 2008.

Any stockholder proposal must be in accordance with the rules and
regulations of the Securities and Exchange Commission. With respect to proposals
submitted by a stockholder other than for inclusion in our 2008 proxy statement
and related form of proxy, timely notice of any stockholder proposal must be
received by us in accordance with our by-laws and our rules and regulations no
later than February 18, 2008. Any proxies solicited by the Board of Directors
for the 2008 annual meeting may confer discretionary authority to vote on any
proposals notice of which is not timely received.

IT IS IMPORTANT THAT YOUR PROXY BE RETURNED PROMPTLY, WHETHER BY MAIL,
BY THE INTERNET OR BY TELEPHONE. THE PROXY MAY BE REVOKED AT ANY TIME BY YOU
BEFORE IT IS EXERCISED. IF YOU ATTEND THE MEETING IN PERSON, YOU MAY WITHDRAW
ANY PROXY (INCLUDING AN INTERNET OR TELEPHONIC PROXY) AND VOTE YOUR OWN SHARES.

By Order of the Board of Directors.

CORINNE A. MAKI
Secretary