Spoiler alert below
The last encounter is brutal. We lost our Paladin and were close to a full on
TPK.
For the captured:
I agree let the two dead PCs create new characters. There were many other adventuring parties hired by the town council including the groups like the Long Striders.
You could have your twosome come up with (or give them) a back story that their party was killed in the vents and that they were wandering lost until they stumbled upon the large room with the flood valve. They saw the orcs take away the others and two have been devising a plan to rescue these fellow adventures. I would give them a small (and somewhat easy) skill challenge like sneaking past a sleeping guard, stealing keys (or picking a lock), finding an seldom used corridor, and escaping to the main room.
Or have the NPC Kalad(sic?) reveal a hidden lock pick, secret release mechanism or some other way of escape. This was a dwarven built area so he may have some insider knowledge that could help. Or just have the party escape with a skill challenge on their own and meet up with the other two, possibly freeing them from a cell and immediately forming a bond of friendship.
As for the magic items, you could have them discovered in the escape as if the orcs likely looted the bodies or have the two new PCs fight two orcs who started using them after they killed the PCs, make them dumb minions and allow the PCs to choose what they get.