ATLANTIC CITY — Complaints from merchants led to the arrest of two men and the recovery of a handgun, police said Tuesday. According to police, officers were conducting surveillance Monday in the 900 block of Atlantic Avenue after receiving complaints from merchants about the possession and distribution of drugs in the area. Police said officers saw two men engage in a narcotics transaction in the entryway of a convenience store on the block. After the exchange, the two separated. Police said officers stopped Alcides Montalvo Jr., 30, of Atlantic City, who was allegedly in possession of marijuana. The other man, Derick Henry, 42, of Absecon, was located in the 800 block of Atlantic Avenue. According to police, Henry was found with a handgun with a defaced serial number, marijuana and hydrocodone. He was charged with two counts of possession of a controlled dangerous substance, two counts of possession with intent to distribute, unlawful possession of a weapon, possession of a weapon while committing a controlled dangerous substance offense, possession of a defaced firearm, certain persons not to possess a weapon, and hindering apprehension. Police said he was sent to the Atlantic County jail in Mays Landing. Montalvo was charged with possession of a controlled dangerous substance and was released on a summons with a future court date, police said.