1/2 cup water
1-3/4 cups sugar, divided
1-2/3 cups all-purpose flour
1 tsp. baking soda
1/4 tsp. salt
1/2 cup (1 stick) margarine or butter, softened
3 eggs
3/4 cup milk
1 tsp. vanilla
1 cup chopped Diamond Walnuts
Microwave chocolate, water and 1/2 cup of the sugar in microwavable bowl on High 1-2 minutes until chocolate is almost melted, stirring halfway through heating time. Remove from microwave oven. Stir until completely melted. Cool to lukewarm.
Mix flour, baking soda, and salt; set aside. Beat margarine and the remaining 1-1/4 cups sugar in 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-in. round layer pans.
Bake for 30-35 minutes or until cake springs back when lightly pressed. Cool in pans 10 minutes. Remove from pans to cool on wire rack. Frost with chocolate frosting and sprinkle with walnuts around the top edge of the cake.