Aw MA I'm sorry to hear about the rescue, but if he was not good with the kitties, then it's for the best that he kind a catless home.
As for those puppies::::
What more can I say except to agree with the majority about splitting them up. I would have to take both. I love German Shepards, great dogs, one of my favorites. We had one when I has a kid and I loved her with all my heart!
They are absolutely precious, both of them. It's going to be a hard choice, but the breeder sounds like a good and caring breeder. I'd be confident in getting a good natured puppy from her. I think it's a better idea to get a puppy as well. That way you will be able to raise it your way, and I know it will love your cats. I had a German Sheperd who is now passed on to the Rainbow Bridge, but I got her as a puppy, and she grew up loving my cat. They were best friends.