Multiple Unit combat, pushing forward and a challenge

[job]

So, I had a great couple of games today with Mike today. Overall the games went really smoothly, but for one tricky combat. It was a real mess of units.

Overview: Mike's Daemonetts with a Hero character charges a Slayer unit with a Dragon Slayer. That round no one breaks. The following round a miner unit and a Longbeard unit with Thane attack opposing flanks of the Daemonettes. The daemonettes manage to kill the remaining troll slayers except the Dragon Slayer and win a victory but no one breaks. The third round sees some Plaguebearers charge the flank of the Longbeards. The Dragon slayer challenges the daemon hero.

Here's where it gets tricky: The dwarves win the combat barely. The last of the daemonettes dies leaving just the two heroes battling, but there are Miners and Longbeards on either side. Both were locked in combat with the former daemonettes unit, so they should push forward to attack the hero, but the daemon hero is in a challenge so he can not be struck in combat.

Question: 1) Do the miners have to step forward to be locked in combat with a hero they can not strike? or do they count as having no more foes?
2) Can the Longbeards reform to face the Plaguebearers? (The Dwarves won the third round of fighting.)

My solution was that (1) the miners are still stuck in combat with the remaining daemon hero, even if they can't fight him. Just tough luck. To the second, I said no reform and it looks like along with having to push forward to stay in contact with the daemon hero they can't strike, (2) they can not reform either. Later, looking at the rulebook, this seems to be the case under p. 55, Unusual Situations, the last paragraph.

Well, what do you guys think? My ruling resolution is rather a stickler by the book (as far as I read). There's nothing really explaining how a "shrinking combat" and a challenge work. It is a particularly troubling a little silly situation for a unit the miners' position, but one could imagine the unit surrounding the challenge and hollering support to their side's champion.

[Tenorikuma]

Since combat reform doesn't occur until after a unit has finished its combat, if I understand the rules on page 55 correctly, they would have to remain locked with the hero they cannot strike for that round. However, even if no attacks or wounds take place, I'm pretty sure you should be able to immediately declare the combat over, determine the winner, and then conduct a combat reform.

[job]

I hope these pictures help explain the situation a bit.
Here's the action at the beginning of the third turn of combat.

melee1.jpg

And here's the action when the questions occurred.

melee2.jpg

It was also an epic moment for the fight. The dwarves did prevail, but it was quiet costly as all the slayer,many longbeards, and miners went down. Poor Agmund fought the campion while the Longbeards and Miners stood and watched him get flayed by the snake-man with many arms-daemon hero.