Incremental encoder Z pulse

Hi,

I am trying to acquire 1 pulse per rev (z pulse). I am a newbie, and can't figure this out, in this code. Can someone help me out?
I wish to have a boolean LED clicked on every Z pulse is sensed (and off everytime the z pulse is passed). 

I tried using MAX, but it isn't detecting the Z pulse, but it works well for A and B (DO you know why?)

http://www.beiied.com/PDFs2/H20_Incremental_Encoder.pdf