It's easy to perform. All you need to do is use a normal-item to exceptional item rune upgrade on it. Quest items are "below" normal items, so if you upgrade it, it just makes it into the first item type. It just so happebs that it is a hand-axe.

You can perform this with the Hellforge Hammer / Gidbinn / Horadric Malus also. For some reason, Khalim's Flail/Will does not do this...