For the Cake:

1. Heat oven to 350F. Microwave chocolate, water and 1/2 cup of the sugar in a microwave-safe bowl on high 1-2 minutes or until chocolate is almost melted, stirring halfway through the heating time. Remove and stir until completely melted. Cool to lukewarm.

2. Mix flour, baking soda and salt; set aside. Beat margarine or butter and the remaining sugar in a large bowl until light and fluffy. One at a time, add eggs, beating well after each addition. Add flour mixture alternately with milk, beating after each addition until smooth. Stir in chocolate mixture and vanilla. Pour into 2 greased and floured 9 inch round layer pans.

3. Bake for 30-35 minutes or until cake springs back to the touch. Cool in pans 10 minutes. Remove from pans to cool on a wire rack. Frost and sprinkle walnuts around the top edge of the cake.

For the Frosting:

Microwave the chocolate and margarine or butter in a large microwave- safe bowl on high for 1-2 minutes or until margarine is melted. Stir chocolate until completely melted. Stir in confectioners sugar, milk and vanilla and blend until smooth. Let stand, if necessary, until of spreading consistency, stirring occasionally. Spread quickly. (Add an additional 2-3 tsps. Of milk if frosting becomes too thick) Makes about 2 1/2 cups frosting.