Question on Penalty Enforcement

[rockyroad]

Friday night's game (HS Varsity)...two flags on the same play. 3rd down and 7 on the defender's 12 yard line...The first flag was holding called on our slot back (it was a great call, the kid did it and got caught). After the whistle was blown, the defender who was held, turned and kneed our slot back in the stomach - flag was tossed...the crew got together and talked about it, then marched off 10 yards for the holding, then 15 yards for the USC, and told us it was 4th and two...since the holding call was accepted, shouldn't third down have been replayed? The WH explained that since there were two flags thrown, we couldn't have the down over...is that correct??