Upgrade does not reference java source files outside of the grails app

SCENARIO
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I have a grails app, FooApp, based on grails 1.1-RC2.
I have a set of libs in a separate path, com.foo.bar.
FooApp references class files in com.foo.bar.

REPRO (upgrading from 1.1-RC2 to 1.2-M3 )
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./FooApp$ grails clean
./FooApp$ grails upgrade

ERROR
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Grails upgrade is "unable to resolve" classes outside the grails app directory.

OUTPUT
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Resolving dependencies...
Dependencies resolved in 1289ms.
Running script .../grails-1.2-M3/scripts/Upgrade.groovy
Environment set to development
NOTE: Your application currently expects grails version [1.1-RC2], this target will upgrade it to Grails 1.2-M3 ...

WARNING: This target will upgrade an older Grails application to 1.2-M3.
However, tag libraries provided by earlier versions of Grails found in grails-app/taglib will be removed.
The target will not, however, delete tag libraries developed by yourself.
Are you sure you want to continue?
(y, n)
y
[delete] Deleting directory /FooApp/resources
Error executing script Upgrade: org.codehaus.groovy.control.MultipleCompilationErrorsException: startup failed, script1256237510929.groovy: 1: unable to resolve class com.foo.Bar
@ line 1, column 1.
1 error

gant.TargetExecutionException: org.codehaus.groovy.control.MultipleCompilationErrorsException: startup failed, script1256237510929.groovy: 1: unable to resolve class com.foo.Bar
@ line 1, column 1.
1 error

at gant.Gant$_dispatch_closure4.doCall(Gant.groovy:331)
at gant.Gant$_dispatch_closure6.doCall(Gant.groovy:334)
at gant.Gant$_dispatch_closure6.doCall(Gant.groovy)
at gant.Gant.withBuildListeners(Gant.groovy:344)
at gant.Gant.this$2$withBuildListeners(Gant.groovy)
at gant.Gant$this$2$withBuildListeners.callCurrent(Unknown Source)
at gant.Gant.dispatch(Gant.groovy:334)
at gant.Gant.this$2$dispatch(Gant.groovy)
at gant.Gant.invokeMethod(Gant.groovy)
at gant.Gant.processTargets(Gant.groovy:495)
at gant.Gant.processTargets(Gant.groovy:480)
Caused by: org.codehaus.groovy.control.MultipleCompilationErrorsException: startup failed, script1256237510929.groovy: 1: unable to resolve class com.foo.Bar
@ line 1, column 1.
1 error