<PAGE>
 
                                 CONFIDENTIAL

                              SEVERANCE AGREEMENT


     THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
as of the 6th day of November, 1998, by and between Larry D. Gray (hereinafter
referred to as "Employee") and American Oncology Resources, Inc. (hereinafter
referred to as the "Company").

                                  WITNESSETH:

     WHEREAS, Employee is currently employed as the Company's Chief Operating
Officer;

     WHEREAS, Employee and the Company mutually desire to terminate their
employment relationship;

     WHEREAS, Employee and the Company mutually desire to avoid and resolve any
and all actual and potential differences between them, including, without
limitation, differences arising out of Employee's employment and the termination
of Employee's employment with the Company;

     NOW, THEREFORE, in consideration of the premises and mutual promises herein
contained, it is mutually agreed as follows:

     1  RESIGNATION.

     Employee hereby tenders, and the Company hereby accepts, Employee's
resignation from his employment with the Company and from any offices or
positions Employee holds with the Company, effective November 6, 1998.
Consistent with the Company's policy of providing references for former
employees, the Company will not make any derogatory comments about Employee to
prospective employers or others.

     2  RELATIONSHIP STATUS.

     Employee will be retained on a part-time status as a consultant from the
period covering November 7, 1998 through April 16, 1999.

     3  COMPENSATION.

          A  RETAINED COMPENSATION COMPONENTS.

          The Company shall pay Employee retained compensation in the amount of
Three hundred eighteen thousand seven hundred twenty-five and 00/100 Dollars
($318,725.00); which sum shall be paid as follows:

               i)  eight (8) months retained compensation equal to $214,000.00
                    will be paid out in the following manner: Two (2) months
                    retained 
<PAGE>
 
                    compensation ($53,500.00) through December 31, 1998 has been
                    paid. Four (4) months retained compensation ($107,000.00),
                    beginning January 1, 1999 will be paid in equal semi-monthly
                    payments on the 15th and last day of the month through the
                    standard payroll process. The remaining two (2) months of
                    retained compensation ($53,500.00) will be made available as
                    a lump sum on April 16, 1999.

               ii)  ten-twelfths of 1998 bonus while a full-time status
                    employee, which in all cases shall be equal to $104,725.00,
                    will be paid to Employee in 1999 by January 15, 1999;

               iii)  and all payments will be subject to federal tax withholding
                    requirements.

          B  TIME OFF WITH PAY.

          On or before seven (7) work days after execution of this Agreement by
Employee, the Company shall pay to Employee, if applicable, all Employee's
earned 1998 Time Off With Pay in an amount equal to $9,270.42.

          C  STOCK OPTIONS.

          The Company had granted to Employee the option to purchase 200,000
shares of common stock effective April 16, 1997 with an exercise price of $8.70
per share.  The stock options granted may, as provided by the Plan, be exercised
for those stock options, which have vested according to a vesting schedule of
20% per year.  Employee is currently vested in 40,000 stock options.  On April
16, 1999, Employee will according to the vesting schedule become vested in
another 40,000 stock options.  Such stock options granted and vested shall
expire and be of no force and effect on the expiration of thirty (30) calendar
days from the date of termination, which according to this Agreement, shall be
April 16, 1999 plus thirty (30) days (May 16, 1999).

          D  COBRA.

          Under  the Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA"), Employee intends to continue group medical and/or dental insurance
currently in place through the Company for both Employee and his dependents.
The Company will make all payments for coverage of Employee and Employee's
dependents under such continued group insurance.  The Company will pay for
Employee and Employee's dependent coverage under such continued group insurance
for a period beginning on December 1, 1998 and ending on June 30, 1999.  It will
be the responsibility of the Employee to apply formally for continued coverage.
All Company forms have been made previously available to Employee under separate
cover.

     4  COMPETITION RESTRICTIONS.

          Employee shall not, for a period of two (2) years following the date
of this agreement, engage in any "competitive activity", as defined below,
without first seeking and obtaining the express written approval of the Company,
which approval shall not be 

                                  Page 2 of 8
<PAGE>
 
unreasonably withheld. The Company shall respond to any request for approval by
Employee within ten (10) days from its receipt of a request sent by certified
mail, return receipt requested to the address specified in Section 6b (viii)
hereof. In the event that the Company fails to respond within ten (10) days, the
request shall be deemed approved.

          A  COMPETITIVE ACTIVITY DEFINED.

          For purposes of this Section 4, it is mutually agreed that
"competitive activity" shall be and is defined to mean serving as an owner,
director, officer or employee of, or as a consultant or advisor to, any person,
firm or other entity that is engaged in the business of Oncology Physician
Practice Management.  Notwithstanding the foregoing, nothing shall prohibit
Employee from purchasing less than ten percent (10%) of the stock of a publicly
traded company that performs Oncology Physician Practice Management.

          B  REASONABLENESS OF RESTRICTION.

          It is expressly and mutually agreed that the foregoing restriction on
competition contains reasonable geographic, temporal and activity restrictions
that are necessary to protect the Company's legitimate business interests, and
have been jointly fashioned by both parties to achieve that protection.  Except
as set forth in this Section 4, any and all other agreements or restrictions
pertaining to Employee's competition with the Company are terminated and of no
further force or effect.

     5  CONFIDENTIALITY.

     Employee shall not use for the benefit of himself or anyone else, or unless
required by law or governmental  regulatory authority, disclose to anyone else,
any "confidential or proprietary information" belonging to the Company or its
subsidiaries, without first seeking and obtaining the express written approval
of the Company.

          A  CONFIDENTIAL OR PROPRIETARY INFORMATION DEFINED.

          For purposes of this Section 5, it is mutually agreed that
"confidential and proprietary information" shall be and is defined to mean all
information that is not readily known to the public in usable form which
provides the Company with a competitive advantage or information known by
Employee other than through the Company, and includes, without limitation, all
non-public financial, operational, strategic, corporate, and product information
pertaining to the Company and its subsidiaries.

     6  RELEASE AND WAIVER.

          A  RELEASE BY EMPLOYEE.

          Except for the obligations and liabilities of the Company to Employee
as set forth in this Agreement, as consideration under this Agreement, Employee
shall and hereby does fully and completely release and waive any and all claims
that Employee can or could have asserted against the Company, its affiliated
entities, and the Company's directors, officers, employees, agents, or
representatives (hereinafter referred to together as "Releasees") through the
date hereof.  These released claims include, without limitation, any and all
claims for wrongful 

                                  Page 3 of 8
<PAGE>
 
discharge, discrimination, breach of contract, retaliation, or torts arising
under any federal, state, or local law, including, without limitation, Title VII
of the Civil Rights Act of 1964, the Civil Rights Restoration Act, the Age
Discrimination in Employment Act, the Texas Commission on Human Rights Act, or
any other claims for wages, back or front pay, employment benefits, compensatory
damages, punitive damages, liquidated damages, attorney fees, and expenses and
costs.

          B  EMPLOYEE'S STATUTORY ACKNOWLEDGMENTS.

          For purposes of this release and waiver of claims, Employee expressly
acknowledges that he:

               i)    has received and read this Agreement, including this
                     release and waiver;

               ii)   has had ample opportunity of not less than twenty-one (21)
                     days in   which to review this Agreement, including this
                     release and waiver;

               iii)  s fully informed of the terms, conditions and effect of
                     signing this Agreement including this release and waiver;

               iv)   has been advised, and had ample opportunity to obtain the
                     advice of competent legal and other counsel and/or advisors
                     of his own choosing concerning the terms, conditions and
                     effects of signing this Agreement, including this release
                     and waiver;

               v)    has relied solely on his own judgment and on the advice of
                     such counselors and advisors with whom he has considered it
                     appropriate, desirable, or necessary to consult in making
                     the decision to sign this Agreement, including this release
                     and waiver;

               vi)   has made his decision voluntarily without any pressure,
                     coercion, or promises from the Company or its employees
                     either to accept or reject this Agreement, including this
                     release and waiver;

               vii)  understands that he has seven days following his execution
                     of this Agreement, including this release and waiver, to
                     revoke such acceptance; and

               viii) understands that any revocation of his prior acceptance of
                     this Agreement, including this release and waiver, must be
                     done in writing and be delivered to:

                              R.  ALLEN PITTMAN
                              VICE PRESIDENT OF CORPORATE SERVICES
                              AMERICAN ONCOLOGY RESOURCES, INC.
                              16825 NORTHCHASE DRIVE, SUITE 1300
                              HOUSTON, TEXAS 77060

                                  Page 4 of 8
<PAGE>
 
          C  RELEASE BY COMPANY.

          Except for the obligations and liabilities of Employee to the Company
as set forth in this Agreement, as consideration under this Agreement, the
Company, on its own behalf and on behalf of the Releasees, shall and hereby does
fully and completely release and waive any and all claims that the Releasees can
or could have asserted against Employee, his heirs, personal legal
representatives, successors or assigns, through the date hereof, including any
and all claims on account of, related to, or arising out of the facts and
circumstances surrounding Employee's employment or termination of employment
with the Company; and the Company hereby agrees to indemnify, defend and hold
Employee harmless with respect to any claim, demand, investigation or action
related to the claims released in this Section 6c as well as those that may
subsequently be brought against Employee arising out of Employee having served
in the capacity of a director, officer, employee or agent of the Company or its
affiliates.  It is agreed that the provisions of this Section 6 shall not affect
any right or claim that Employee may have pursuant to any directors' and
officers' liability insurance policy maintained by the Company or any right or
claim for indemnification of Employee by the Company pursuant to law, under
contract, or as provided in the Company's Articles of Incorporation or Bylaws.

     7  COOPERATION.

          A  EMPLOYEE AS FACT WITNESS.

          Employee shall fully, completely and freely cooperate with the
Company, and its attorneys and other agents, in preparing for and pursuing any
actual or threatened legal action, in whatever forum, in which the Company or
one of its subsidiaries is or may become a party, and for such services Employee
shall be entitled to receive compensation at the rate of $300.00 per hour as
well as reimbursement of reasonable travel expenses incurred at the Company's
request.  The Company has heretofore disclosed to Employee in writing all known
claims, demands, and causes of action of which it is aware at the time of
signing this Agreement and of which Employee's services may be requested.  This
disclosure, if any, as of the date of this Agreement, does not preclude employee
from future requests of services.  To the maximum extent possible, the Company
shall seek to schedule any such requested services at times and places that are
not disruptive of Employee's then current obligations.  Nothing in this Section
7a is intended to obligate Employee to prepare written reports or compilations
of data for the Company.  Unless required by law or governmental regulatory
authority, Employee shall take no action that is or may reasonably be construed
as adverse to the interests of the Company or its subsidiaries in any such legal
action.  Notwithstanding the foregoing, in any actual or threatened legal action
in which Employee shall be or may become a party, Employee shall have the right
to defend his interests, including the pursuit of any claim for indemnification
against the Company or its subsidiaries.  In the event that Employee becomes a
Defendant in any legal action, or the target of any administrative
investigation, relating to his tenure with the Company, the Company shall
cooperate in making available its records for inspection by Employee or his
attorney.

          B  REPUTATION.

          The Company and Employee agree that neither party will criticize or
disparage each other in a manner intended or reasonably calculated to result in
embarrassment or injury to 

                                  Page 5 of 8
<PAGE>
 
the reputation of the Company or Employee. This Agreement and its terms shall be
maintained in strict confidence by the Company and Employee and the Company and
Employee agree that it will not disclose, directly or indirectly, to any third
party the existence or terms of this Agreement. In the event that the Company is
asked about Employee's separation from the Company and/or any other claim which
either party may have against each other, the Company shall reply with the words
"Larry Gray has resigned" that will not otherwise indicate the nature of the
resolution of this Agreement or its existence; provided, however, this provision
shall not prevent the Company from providing information otherwise required by
law or governmental regulatory authority.

     8  CHOICE OF LAW AND INTERPRETATION.

     This Agreement is made and entered into in the State of Texas, and shall in
all respects be interpreted, enforced and governed under the laws of the State
of Texas.  The language of all parts of this Agreement shall in all cases be
construed as a whole, according to its fair meaning, and not strictly for or
against any of the parties.

     9  SEVERABILITY OF PROVISIONS.

     Should  any provision of this Agreement be declared or be determined by any
court to be unenforceable or invalid as drafted, it may and shall be reformed or
modified by a court of competent jurisdiction to the form of an enforceable and
valid provision that achieves, to the greatest extent possible, the result
intended by the parties in drafting and agreeing to the unenforceable and
invalid provision.  Should a court of competent jurisdiction decline to so
reform or modify such a provision or determine that no enforceable and valid
provision can be created to achieve the intended result, the enforceability and
validity of the remaining parts, terms or provisions of this Agreement shall not
be affected thereby and said unenforceable or invalid part, term, or provision
shall be deemed not to be a part of this Agreement.

     10  ENTIRE AGREEMENT.

     This Agreement sets forth the entire agreement between the parties hereto,
and fully supersedes any and all prior agreements or understanding between the
parties hereto pertaining to the subject matter hereof, and may only be modified
by a subsequent written agreement.

     11  EFFECT OF TERMINATION.

     Notwithstanding any termination of this Agreement or any relationship
between Company and Employee, the provisions of this Agreement, including
Sections 1, 2, 3, 4, 5, 6 and 7 of this Agreement, and the rights and
obligations under this Agreement, shall survive without limitation.

     12  OUTPLACEMENT SERVICES.

     The Company shall also provide Employee with outplacement services, in the
form of a payment in the amount of $5,500.00 which will be paid to Employee on
or before seven (7) work days after execution of this Agreement by Employee.
This payment may be used for items determined by Employee, in Employee's sole
discretion.

                                  Page 6 of 8
<PAGE>
 
     EXECUTED effective the 6th day of November, 1998.


                              COMPANY:

                              AMERICAN ONCOLOGY RESOURCES, INC.

                              By:
                                 ---------------------------------------
                              Name:  R. Allen Pittman
                              Title:  Vice President of Corporate Services
                              Company:  American Oncology Resources, Inc.
                              Address:  16825 Northchase Drive, Suite 1300
                              City, State, Zip: Houston, Texas 77060
                              Telephone No.: 281-775-0101
                              Fax No.: 281-775-0301


                              EMPLOYEE:

                                 --------------------------------------- 
                              Name:  Larry D. Gray
                              Address: 30 Windward Court
                              City, State, Zip: The Woodlands, Texas 77381
                              Telephone No.: 281-364-0888
                              Fax No.: 281-298-2998

                                  Page 7 of 8
<PAGE>
 
THE STATE OF TEXAS
COUNTY OF
KNOW ALL MEN BY THESE PRESENTS THAT:


     BEFORE ME, the undersigned authority, on this day personally appeared R.
Allen Pittman, Vice President of Corporate Services for American Oncology
Resources, Inc., known by me to be the person whose name is subscribed to the
foregoing Severance Agreement acknowledged to me that he executed the same for
the purposes and consideration therein expressed and in the capacity therein
stated.

     GIVEN UNDER MY HAND AND SEAL OF OFFICE on this    day of November, 1998, to
certify which witness my hand and seal of office.

 
                              ---------------------------------------------
                              Notary Public in and for the State of Texas

                              My Commission Expires: 
                                                    ________________________


THE STATE OF TEXAS
COUNTY OF

KNOW ALL MEN BY THESE PRESENTS THAT:


     BEFORE ME, the undersigned authority, on this day personally appeared Larry
D. Gray, known by me to be the person whose name is subscribed to the foregoing
Severance Agreement acknowledged to me that he executed the same for the
purposes and consideration therein expressed.

     GIVEN UNDER MY HAND AND SEAL OF OFFICE on this    day of November, 1998, to
certify which witness my hand and seal of office.


                              ---------------------------------------------
                              Notary Public in and for the State of Texas

                              My Commission Expires:
                                                     -----------------------

                                  Page 8 of 8