The class containing the method that you want to call needs to be on the Java classpath.
(It doesn't need to be in the same directory as Saxon or the stylesheet, and there's no particular advantage in putting it there.)
I'm not sure what Saxon release you are using. Later releases have a command line option -TJ that gives you extra diagnostics about loading extension functions.
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Michael Kay
http://www.saxonica.com/
Author, XSLT 2.0 and XPath 2.0 Programmer\'s Reference
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