Welcome to JustAnswer! I am a Licensed Professional Counselor. Please note, this is not therapy, but information. I do hope I can help you though.
I am so sorry you are going through this. You are probably correct...you have not tried everything. The fact is though you are stuck with his decision to throw in the towel. The sad part is so are the kids. Divorces is never good for the kids. They will survive though, with love and care.
As for breaking the news to them, there is probably no good way to do it. You just need to let them know that they are loved by both of you and that is not going to change. You are still a family as far as they are concerned. You are going to work to gether and for each other as much as possible. As far as the timing, I really think there is not necessarily a good time. I can see no advantage to post poning it.
As for spending time at his brother's, I can see nothing good about that, based on the knowledge I have. I believe it is more than just the threat of drug use. It is also the lifestyle in general...the friends he associates with, etc.
That said, these kids need their daddy. You need to figure a way around this to make sure both parents are part of their lives. i promise you, with dad on your side the end result for the children will likely be better. But he needs to make tHe effort to make that feasible.
I hope I have been helpful. Let me know if you have any further questions. Thank you!