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RFE issued to prove I am not 'out of status' on H1B transfer during grace period of 60 days

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Hello. Please help me with the following situation. 

My initial H1B was approved with company A and started on Oct 1 2016 and is valid until June 15 2019. I also have a visa stamping. My employment with company A was terminated on Mar 10. The new company B filed my H1B transfer on Apr 17. Last week I got an RFE saying "Evidence submitted with the instant petition indicates that the beneficiary was employed with his previous employer, until March 10, 2017. The instant petition was filed on Apr 18, 2017. Therefore, Provide evidence to establish that the beneficiary was in a valid nonimmigrant status at the time the petition was filed and provide evidence of the beneficiary's current immigration status. If not, the request for an extension of stay may not be approved and the petition (if approved) will be forwarded abroad to consulate identified in Part 4 of form I129 petition".
 

My question is, Why am I considered 'out of status' as the new rule allows a grace period of 60 days before which he/she can find new employment and start working once the petition is filed? Also, I started working for new employer on Apr 18 with the receipt notice and I am being paid every month since then. What should be my reply to the RFE I got. Kindly help.

Thank you

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