Vikas,
That looks fine. Just make sure your package names are all lowercase. Also, moving db.db up to the root directory would probably be simpler so you could hardcode a default location just using the filename as opposed a path which involves File.separator, and most
java projects I've seen try to keep the source code isolated with the exception of package.html (thanks, Sun!). Finally, I would imagine the client jar would need the code in the server package as well, unless you're doing dynamic class loading, which I would not recommend.
Pete