JNLP classpath nested folders

Question

I'm running into some issues with deploying a JNLP applet.

For some reason if I don't put all the necessary files into the same directory as the JNLP file, Java complains that it can't find it.

example jnlp file:

<?xml version="1.0" encoding="UTF-8"?>
<jnlp spec="1.0+" codebase="file:/C:/temp/lwjgl_test/" href="LWJGLTest.jnlp">
<information>
    <title>LWJGL Test</title>
    <vendor>helloworld</vendor>
</information>
<resources>
    <!-- Application Resources -->
    <j2se version="1.7+"
        href="http://java.sun.com/products/autodl/j2se" />
    <jar href="LWJGLTest.jar" main="true" />
<jar href="lib/lwjgl.jar"/>
<jar href="lib/windows.jar"/>

</resources>
<applet-desc 
     name="LWJGL Test"
     main-class="LWJGLTest"
     width="640"
     height="480">
 </applet-desc>
 <update check="background"/>
</jnlp>

I've moved lwjgl.jar and windows.jar out of the lib folder into the same folder as everything else and it works, but I don't understand why I get a classpath exception if I don't. Is there something else I need to change to get this to work?

stack trace:

Exception in thread "Thread-9" java.lang.UnsatisfiedLinkError: no lwjgl in java.library.path
    at java.lang.ClassLoader.loadLibrary(Unknown Source)
    at java.lang.Runtime.loadLibrary0(Unknown Source)
    at java.lang.System.loadLibrary(Unknown Source)
    at org.lwjgl.Sys$1.run(Sys.java:73)
    at java.security.AccessController.doPrivileged(Native Method)
    at org.lwjgl.Sys.doLoadLibrary(Sys.java:66)
    at org.lwjgl.Sys.loadLibrary(Sys.java:95)
    at org.lwjgl.Sys.<clinit>(Sys.java:112)
    at org.lwjgl.opengl.Display.<clinit>(Display.java:135)
    at LWJGLTest$2.run(LWJGLTest.java:67)
    at java.lang.Thread.run(Unknown Source)