First off, it's not easy, but you want me to tell you something you don't already know, lol. The best thing is not to sit him down for the 'talk'. Instead, just bring up things one at a time at various times of relaxation. You might be driving to the store, turn down the radio a bit, and ask "Hey, I was wondering, do kids in your class have boyfriends and girlfriends?" and see what his response is. Maybe in the evening the two of you are sitting on the couch or laying across his bed, and you can ask, "do any of the kids in your class talk about sex?" You can go from that to,
After a while, you will find it easier to have general conversations about girls, relationships, and then eventually move onto the sex discussions. Try to be matter of fact about it, even clinical. Don't act embarrassed, or he will feel embarrassed. Don't let him wiggle out of it, keep a straight face and act like it's totally normal to talk about these things, even if you don't feel that way. Sex education is something that should begin as soon as a child can talk, and should be something that is talked about at the very least every few months, until they are adults, and even then they should know that if they need/want to talk that you are open and available to them. Of course it's going to feel embarrassing to one or both of you, but its up to you to let him know there's no shame or embarrassment. Sex/masturbation is not a bad thing, in fact it can be very enjoyable in the correct context and thats what he really needs to understand. Masturbation isn't a bad thing, like touching his body is not a bad thing, as long as it's in private. He has to live with his body for the rest of his life, so he should know everything about it.
Also let him know that people will tell him all kinds of things about sex, but that he should always seek to find the truth out for himself, by talking to you or someone he feels comfortable talking to. There are many books, broken up by age category that you can get, some with pictures that can help to talk and discuss things.
As for masturbation in particular, let him know that his body is his own, and that he should not let anyone touch him, nor should he touch others. Especially since h e has been 'touching' kids at school, let him know that it's not his right to impose himself on others. I know it's hard, my sister just asked me to have the 'talk' with my nephew who will be 11 this month, to give you an idea of how thorough I tried to be we talked about