In a large bowl, cream butter and 3/4 cup plus 2 tablespoons sugar until fluffy. Blend in egg yolks and chocolate. Sift together flour, baking powder and salt; add alternately with milk to creamed mixture. stir in nuts. Beat egg whites with remaining sugar until stiff peaks form; fold gently into batter.
Pour into two greased and floured 8-in. round baking pans. Bake at 350° for 30-35 minutes. Cool in pans on a rack for 10 minutes before removing from pans. Cool completely.
For frosting, combine all ingredients except vanilla in the top of a double boiler. With an electric mixer, beat on low for 30 seconds. Cook over boiling water for 7 minutes, beating constantly on high until stiff peaks form. Remove from heat and add vanilla. Beat 2-3 minutes or until frosting has a spreading consistency. Frost cake.