Preheat oven to 350F. Grease and flour 2 (9") layer cake pans.
In a saucepan, melt chocolate in water over very low heat,
stirring constantly until smooth. Add 1/2 c. sugar.
Cook and stir for 2 min. longer. Cool.
In a mixing bowl, mix flour, baking soda and salt.
Set aside. In a large mixing bowl, cream butter.
Gradually beat in remaining 1 1/4 c. sugar and
continue beating until light and fluffy. Add eggs,
one at a time, beating thoroughly after each addition. Alternately add flour mixture and milk to creamed mixture,
beating after each addition until smooth.
Blend in vanilla and chocolate mixture.
Pour into prepared cake pans and bake until done, about 25 minutes.
Cool in pans for 10 min. before removing. Makes 2 cake layers.