Added code before call to AOInitialize that went something like:
File jarFile = new File(<put the full path to arcobjects.jar here>);
URLClassLoader sysloader = (URLClassLoader)ClassLoader.getSystemClassLoader();
Class <URLClassLoader> sysclass = URLClassLoader.class;
try{
Method method = sysclass.getDeclaredMethod("addURL", new Class[]{ URL.class} );
method.setAccessible(true);
method.invoke(sysloader, new Object[]{ jarFile.toURI().toURL() } );
}
catch{
// handle error in here
}