Wow, I didn't realize it was this serious. It is possible to encrypt sp's in sql-server and if this company has let you have direct access to the database then this would have been a good idea from their side. It is not common for software-vendors to expose their sourcecode and this company you are been in a dispute with should know this.

An sp can be encrypted like this:

CREATE PROCEDURE myProcName WITH ENCRYPTION
AS
...

This way you or any others will not be able to access the sorcecode of the procedure. You can try it yourself for verification:

EXEC sp_helptext myProcName

Now when it comes to your legal rights to change their sourcecode my belief is that you unfortunately have a weak case. Brett Kaiser is partially right I belive that it comes down to what you have on paper and not, but since you have used their software you automatically agree that their software is usable and if you hae paid for it aswell you aknowledge that they are the rightful owners. I would try to go down the lane of putting the blame on them for not fulfilling their duties as a software vendor, and because they didn't perform their duties you had to remedy the bugs yourself.

Good luck man, I'm sorry to say that I'll think you'll need it