Heat oven to 350 degrees F.
Grease three 8-inch-round cake pans; line bottoms with waxed paper and grease waxed paper. Sift together flour, baking powder, baking soda and salt into medium-size bowl. Melt unsweetened chocolate and water together in small saucepan over medium heat, stirring until blended. Remove from heat; let cool. Stir in vanilla.
Beat the butter and sugar in a large bowl until blended. Add eggs; beat 2 minutes or until light and fluffy. Beat in chocolate mixture until blended. On low speed, alternately beat in the flour mixture and milk in 3 additions, beginning and ending with the flour mixture. Scrape the batter into prepared pans, dividing the batter evenly.
Bake in 350 degree F oven 20 minutes or until cake springs back when lightly pressed in center. A wooden pick inserted in center of cake should come out clean. Cool pans on racks for 5 minutes. Remove cakes from pans to racks to cool completely. Carefully peel waxed paper from cake layers.
Heat the butter and chocolate in a medium-size heavy-bottomed saucepan over low heat, stirring until chocolate and butter are melted. Remove from heat. Stir in coffee, vanilla and salt. Add the confectioners sugar and beat until smooth. Then chill for 10 minutes or until the frosting is of a good spreading consistency.
Invert one cake layer onto serving plate. Frost with 1/2 cup frosting. Repeat with the second layer. Add the third layer, then frost the sides and top of cake with remaining frosting. Store frosted cake in refrigerator. Serve at room temperature. Makes 10 servings.