IPhoto11, external HD and new iMac

So I hvae an old iMac running iPhoto 11. have it configured that all photos automatically are stored on an external hard drive and bypass my current harddrive altogether. I just bought a new iMac and have a few questions.
1) I hooked up my external HD and iPhoto finds the photo library. It tells me I need to upgrade the photos to work with this version of iPhoto. Do I select "upgrade"?
2) If I do upgrade, will these photos remain on the external hard drive? Will the current events/albums/etc sorting remain the same or will they be merged into one single event?
3) How do I set it up so that all new images are transferred to the external drive and bypass the new iMac.
Thanks.

have it configured that all photos automatically are stored on an external hard drive and bypass my current harddrive altogether
Just so wer'e on the same page are you running a "managed"  library
and is the library located on the external HD?
OT

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